- The FNB/BER Building Confidence Index shed 9 index points to register a level of 39 in 1Q2016.
- The fall in confidence was broad-based with all but one of the six sub-sectors surveyed reporting lower confidence.
- The robust growth in residential building seen in 2015H1 seems to have come to an abrupt stop, while non-residential building remained weak.
- In sum, the building sector started the year on the back foot after recording decent growth in 2H2015. Growth for the remainder of the year is set to come under further pressure.
The FNB/BER Building Confidence Index moved to 39 points in 1Q2016, from 48 in 4Q2015. This marks the lowest confidence since the beginning of 2013.
The current level of the index indicates that more than 60 per cent of respondents are dissatisfied with prevailing business conditions. In addition, of the six sub-sectors surveyed, all but one (namely main contractors) registered lower confidence. This suggests a broad-based weakening in the industry.
Main contractor confidence edged slightly higher to 43 index points, from 39 in 4Q2016. “The rise in confidence betrays the much weaker building activity recorded during the quarter. This is especially true of residential building activity which slowed noticeably following a strong showing towards the end of last year, while non-residential contractor activity remained very weak” says John Loos, property economist at FNB.
The overall profitability and level of competition among main contractors remained largely unchanged in 1Q2016, compared to 4Q2015. This may have supported confidence.
The biggest decline in confidence was registered by retailers of building material which fell to 39 in 1Q2016, from 61 in 4Q2015. This returns the index to the level reported in 3Q2015. “The results over the past few quarters suggest that growth in the retail hardware sector is losing momentum. Hardware retailer confidence and sales, a decent proxy for the informal building sector, fared well during 2013, 2014 and the first half of 2015. This helped boost overall building activity when the formal building sector was under pressure,” adds Loos. The fall in confidence was underpinned by a sharp deterioration in sales as well as profitability during the quarter.
The confidence of manufacturers of building material shed 11 index points to register a level of 20 in 1Q2016. According to Loos, “this reflects the weaker sales by building retailers as well as the slowdown in main contractor activity”. Building material manufacturers, however, are reasonably upbeat about prospects for sales and production during the next quarter.
Activity at the start of the building pipeline remained constrained in 1Q2016. “Despite there being some areas where activity improved, for the most part it weakened. This does not bode well for the outlook for the building sector, particularly on the back of the disappointing performance this quarter”, says Loos. As a result of the weaker activity, architect confidence lost 12 points and quantity surveyor confidence lost 10 points to both end at 43 in 1Q2016.
Sub-contractor confidence was also lower at 43 index points, from 51 in 4Q2015.
In conclusion: After recovering somewhat during 2H2015, activity in the residential building sector deteriorated noticeably in 1Q2016. This, along with the continued weakness in non-residential activity means that the overall building sector started the year on the back foot. In addition, support to the industry from the informal market has started to wane.
Looking ahead, the building sector is likely to remain under pressure. “Not only is activity at the start of the building pipeline weaker, but broader macroeconomic factors such as constrained economic growth and rising interest rates will also weigh on the fortunes of the sector” says Loos.
About the survey:
The FNB/BER building confidence index can vary between zero (indicating an extreme lack of confidence) and 100 (indicating extreme confidence). It reveals the percentage of respondents that are satisfied with prevailing business conditions in six sectors, namely architects, quantity surveyors, main contractors, sub-contractors (plumbers, electricians, carpenters and shop fitters), manufacturers of building materials (cement, bricks and glass) and retailers of building material and hardware.
In contrast to the RMB/BER BCI, which includes only main contractors, the FNB/BER building confidence index covers the whole pipeline, from planning (represented by the architects and quantity surveyors), renovations, additions, owner builders, the informal sector (represented by building material and hardware retailers) and production (manufacturers of building materials) to the actual erection of buildings by main contractors and sub-contractors. The fieldwork for the fourth quarter survey was conducted between 25 January and 29 February 2016.